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United States v. American Society of Composers

May 13, 2009

UNITED STATES OF AMERICA, PLAINTIFF,
v.
AMERICAN SOCIETY OF COMPOSERS, AUTHORS AND PUBLISHER, ET AL., DEFENDANTS.
IN THE MATTER OF THE APPLICATION OF YOUTUBE, LLC F/K/A YOUTUBE, INC., APPLICANT, FOR THE DETERMINATION OF REASONABLE LICENSE FEES.



The opinion of the court was delivered by: Conner, Senior District Judge

OPINION AND ORDER

REDACTED VERSION

This proceeding is before the Court for the setting of interim fees for a blanket license for the public performance of any of the more than two million musical compositions in the repertory of the American Society of Composers, Authors and Publishers ("ASCAP") on the streaming video service provided on the Internet by YouTube, LLC f/k/a YouTube, Inc. ("YouTube").

BACKGROUND

The Second Amended Final Judgment entered in the United States' civil antitrust action against ASCAP ("AFJ2") provides in Section IX that anyone desiring a license for the public performance of any ASCAP musical composition may apply to ASCAP therefor and, upon such application, may perform the music for fees to be determined later. See United States v. Am. Soc'y of Composers, Authors & Publishers, 2001 WL 1589999, at *6 (S.D.N.Y. June 11, 2001) (Conner, J.) Section IX further provides that if the parties cannot agree on the fee for such license, either party may apply to this Court to set reasonable interim and final fees. Id.

On September 25, 2006, YouTube applied to ASCAP for a blanket through-to-the-listener license for a two-year period commencing in May 2004. (Glancy 1/20/09 Decl., Ex. C.) On January 5, 2007, YouTube amended its application to seek a license for the period May 1, 2005 through April 30, 2007. (Id., Ex. D.) On January 9, 2007, ASCAP responded by sending to YouTube a copy of its Experimental License Agreement for Interactive Sites & Services - Release 2.0, stating that ASCAP believes it to be "the appropriate form of ASCAP license for YouTube" and proposing that if this form license is not acceptable to YouTube that "we agree upon interim fees to be paid until we can arrive at final license terms." (Id.) When the parties were unable to agree on either interim or final license fees, on May 23, 2008, ASCAP commenced this rate proceeding by filing in this Court an application pursuant to Section IX of AFJ2 for the setting of interim and final fees through April 30, 2010. ("ASCAP Applic." ¶¶ 13-14.)

After unproductive efforts to obtain desired discovery and on the basis of the incomplete information then available to it, on January 21, 2009, ASCAP submitted to YouTube and this Court its Interim Fee Proposal ("ASCAP Prop."). On March 16, 2009, YouTube submitted its Opposition and Counterproposal ("YouTube Opp."). On March 31, 2009, ASCAP submitted its Reply Memorandum ("ASCAP Reply") and YouTube submitted a surreply letter on April 10, 2009 ("YouTube Surreply").

The following recitation of facts is based upon the representations of the parties, mostly unverified, and does not constitute findings of fact, which must await an evidentiary hearing.

I. YouTube's Public Performances of Music

YouTube, which was launched in 2005, has rapidly grown to become the leading provider of streaming video service on the Internet. (See Maxcy Aff.) In July 2008 almost 91 million unique visitors to its website watched five billion videos, constituting 44% of all videos viewed on the Internet in the United States during that month. (ASCAP Prop. at 1.) These videos are streamed on demand and without charge. (Maxcy Aff. ¶¶ 6, 9.) YouTube is supported entirely by advertising revenues. (Id. ¶ 9.)

In addition to viewing streaming video, the YouTube website provides users with a number of non-viewing activities including "posting comments and messages, searching, uploading content, designing their homepage 'channels,' and otherwise interacting with text web pages." (YouTube Opp. at 7.) However, most if not all of these non-viewing activities are available free on other websites such as Yahoo! and therefore add little to the unique drawing power of YouTube which is almost wholly attributable to its broad and varied store of streaming videos.

The parties sharply dispute the percentage of the YouTube videos that are music-centered. ASCAP cites industry surveys showing that 27% of all videos viewed online once a week or more are music videos and seven of the top ten YouTube channels are music channels, with Universal Music Group ("Universal") and Sony BMG operating the top two channels. (ASCAP Prop. at 4 n.11, 5.) Based on a review of YouTube's 100 "Most Viewed (All Time)" videos, ASCAP asserts that "88% of YouTube's most popular videos are music videos or videos scored to music." (ASCAP Prop. at 1, 4; Wilders Aff. ¶¶ 2-5, Exs. A-B.) YouTube, without a supporting citation, represents that "only a tiny portion of [YouTube videos] consist of what are typically known as 'music videos' -- and the vast majority of which are not focused on music at all." (YouTube Opp. at 3 (emphasis in original).) But the Court's own count of Wilders's data shows that 66 of the top 100 YouTube videos are music videos, which is definitely not a "tiny portion" of the "most viewed" videos. Moreover, many of the audio-visual offerings on YouTube, although not classified as "music videos," contain substantial amounts of music; these include movies, TV shows and user-uploaded videos showing amateur music groups and performers. In the Court's own visits to the YouTube website, every one of the commercially-produced "non-music" videos that it saw and heard contained continuous background music.

Apparently YouTube's computation of the music-video-to-total-video fraction was distorted by including in the denominator the millions of user-uploaded personal videos that attract only limited viewings. Without a precise count of the total time users spend viewing music videos and other videos scored to music versus the total viewing time for all videos, the Court cannot reliably determine the value of music in attracting visitors to YouTube and thereby increasing its advertising revenue. However, it is clear that music-centered videos represent a very significant part of YouTube's drawing power.

II. YouTube's Revenue

In its interim fee proposal, ASCAP states that it "has not had the benefit of meaningful discovery that would show all of [YouTube's] revenue sources," explaining that, although YouTube produced a one-page document summarizing the company's revenues, it "has not produced any supporting documentation that would enable ASCAP to understand this summary." (ASCAP Prop. at 13, 18 n.49.) In its opposing submission, YouTube reported "global revenue" of [REDACTED] from its launching in 2005 through 2006, [REDACTED] in 2007 and [REDACTED] in 2008. (Thomas Aff. ¶ 6.) YouTube represents that "[REDACTED]." (Id. ¶ 4.) YouTube therefore proposes, "as a reasonable means of calculating [its] domestic revenue," to reduce its global revenue to levels proportional to "the percentage of global video views, or 'traffic,' attributable to users in the U.S." (YouTube Opp. at 10.) YouTube computes these U.S.-user percentages as [REDACTED] in September through December ...


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